Judge to Ozy Media investor: not all that's shocking is illegal

(Reuters) - A California federal judge said on Wednesday that she would dismiss an investor's lawsuit accusing Ozy Media Inc and its co-founder of fraud over his impersonation of a YouTube executive on a call with then-prospective investor Goldman Sachs.

U.S. District Judge Beth Labson Freeman said, however, that she would allow the investor, LifeLine Legacy Holdings LLC, to amend the complaint, which seeks to rescind investments worth $2.25 million in the digital media company.

The judge, who sits in San Jose, said that the lawsuit over Ozy co-founder Samir Rao impersonating a YouTube executive on a call with Goldman asset managers who were weighing a $40 million investment in the company, was "unlike any I have seen."

However, the judge noted that Ozy told LifeLine that Goldman had ultimately declined to invest, and questioned whether the securities laws required the company to say why.

"Sometimes there can be things that our eyebrows jump off our heads because it was so shocking that it was done but it might not be a violation of law," she said.

The fund sued Rao, Ozy and its chief executive Carlos Watson in October following a New York Times report saying Rao had posed as a YouTube executive to talk up Ozy's audience numbers on a call with Goldman in February. Watson attributed the incident to a "mental health issue."

The investor said the company's executives and directors sought to conceal the incident and minimize its seriousness. Had it known, it would not have invested $2 million in the company in late February, LifeLine said in the complaint.

Freeman said on Wednesday that she would dismiss the case, but let LifeLine amend its claims to argue that Ozy Media's handling of the incident breached its stock purchase agreement with the fund. She suggested the investors could argue the company had a duty to disclose that a senior officer had a disability that could affect the business.

LifeLine is affiliated with Beverly Hills-based LifeLine Financial Group, which describes itself on LinkedIn as a wealth manager for athletes and entertainers.

The case is Lifeline Legacy Holdings LLC v. Ozy Media Inc et al., U.S. District Court, Northern District of California, No. 5:21-cv-07751.

For LifeLine: Christopher Petersen of Blank Rome

For Ozy: Alexander Shapiro of Ford O'Brien Landy

For Rao: August Gugelmann of Swanson & McNamara

For Watson: Hartley West of Dechert

Read More:Investor sues Ozy Media for fraud over founder's fake call

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